Mr. Jaime Leverton reports
HUT 8 AND US BITCOIN ANNOUNCE MERGER OF EQUALS TO CREATE A PREEMINENT DIGITAL ASSET MINING, HOSTING, MANAGED INFRASTRUCTURE OPERATIONS, AND HIGH PERFORMANCE COMPUTING ORGANIZATION
The directors of Hut 8 Mining Corp. and U.S. Data Mining Group Inc. dba (doing business as) U.S. Bitcoin Corp. (USBTC), builder and strategic operator of four bitcoin mining centres across the United States, have unanimously approved a definitive business combination agreement, under which the companies will combine in an all-stock merger of equals. The combined company will be named Hut 8 Corp. and will be a U.S.-domiciled entity. The transaction is expected to establish New Hut as a large-scale, publicly traded bitcoin miner focused on economical mining, highly diversified revenue streams and industry-leading best practices in ESG (environment, social and governance).
"Our established track record of creating shareholder value through organic growth and strategic acquisitions while maintaining a balance sheet-first approach has positioned us perfectly to advance our growth trajectory through this business combination," said Jaime Leverton, chief executive officer, Hut 8. "Bringing together Hut 8's operational track record and diversified revenue streams with US Bitcoin's scalable mining sites, sizable hosting business, and industry-leading managed infrastructure operations not only accelerates our diversified strategy and positions us for near-term growth, but also establishes us as a strong, U.S.-based player that is ready and able to seize additional opportunities as they arise."
New Hut will have access to approximately 825 MW of gross energy across all six sites with self-mining, hosting and managed infrastructure operations.
- It will have 5.6 EH/s (exahashes per second) of installed self-mining capacity and 244 MW (megawatts) of total energy available at five sites with current self-mining operations: Medicine Hat, Alta.; Drumheller, Alta.; Niagara Falls, N.Y.; Granbury, Tex.; and King Mountain, Tex. The 1.7-exahash-per-second installed self-mining production at the King Mountain, Tex., site is owned by the King Mountain joint venture (JV) in which USBTC has a 50 per cent membership interest alongside a leading energy partner. USBTC continues to address a legal dispute with the city of Niagara Falls, N.Y., over operations at the site in the same city. While operations continue uninterrupted, the team has a contingency plan in place that it will pursue should a resolution not be met.
- New Hut will manage 220 MW of hosting infrastructure at its King Mountain, Tex., site, powered by a mix of sources including wind and nuclear, supporting multiple clients, including some of the industry's largest miners. Hosting is owned by the King Mountain JV.
- The combined company will manage 680 MW of infrastructure operations powered by energy from a mix of sources, including renewable and zero-emission in Kearney, Neb., and Granbury and King Mountain, Tex. This unique, leading-edge service offering gives bitcoin mine site owners the opportunity to have USBTC's professionals manage all day-to-day operations, hosting, site management and maintenance using purpose-built site management software.
"We've been searching for the right partner to join us on our ambitious growth journey for some time and are confident that Hut 8 is the perfect fit," said Michael Ho, co-founder and chief executive officer of USBTC. "We were initially attracted to Hut 8's strong track record, admirable fiscal management through all market cycles and like-minded approach to generating diversified lines of revenue. Through this process, we've determined that the strategic impact this transaction will drive is significant: we see a clear path to leveraging our collective vision to drive innovative technology advancements and become a second-to-none operator."
"The combination of Hut 8 and USBTC is an important step, but it's truly just the beginning," said Asher Genoot, co-founder and president of USBTC. "We believe that New Hut will challenge industry paradigms and set the standard for operating rigor and team culture. We are laser-focused on identifying opportunities to capture untapped value across the mining ecosystem. Together, we will become an exceptional self-mining operator, hosting provider, strategic operator of managed infrastructure, purveyor of high performance computing infrastructure and industry-leading ASIC repair and sales hub, underpinned by world-class operating technology and IP [intellectual property] to drive growth."
The transaction will create a leading bitcoin mining company operating in North America with strong financial and operating metrics. Under the business combination agreement, New Hut will be led by a combined board of directors and management team of bitcoin miners, energy experts and business leaders, bringing together the proven cultures, strengths and capabilities of both companies.
"This transaction has given us the opportunity to leverage the significant, unencumbered bitcoin stack we have HODLed [hold on for dear life] to date," said Mr. Leverton. "During the interim period, we plan to cover our operating costs through a combination of selling the bitcoin we mine, selling from our stack and/or exploring various debt options, as agreed under the terms of the business combination agreement. Upon a successful close of the transaction, we will take the opportunity to carefully review and determine our go-forward treasury strategy."
Details of the transaction and strategic rationale
Pursuant to the business combination agreement, shareholders of Hut 8 will receive, for each Hut 8 share, 0.2 of a share of New Hut common stock, which will effectively result in a consolidation of the Hut 8 shares on a five to one basis. Stockholders of USBTC will receive, for each share of USBTC capital stock, 0.6716 of a share of New Hut common stock. Based on the five-day VWAP (volume-weighted average price) for the Hut 8 shares on the Nasdaq as of the last trading day prior to the date of this announcement, the aggregate consideration implies a combined market capitalization of approximately $990-million (U.S.).
Upon consummation of the transaction, existing Hut 8 shareholders and USBTC stockholders will each collectively own, on a fully diluted in the money basis, approximately 50 per cent each of the stock of the combined company. Following completion of the transaction, Hut 8 and USBTC will each become wholly owned subsidiaries of New Hut.
Key strategic, financial and operational advantages of the combined business include:
Strengthens financial position and flexibility. The combined balance sheet creates greater financial stability through market cycles and allows New Hut to grow and invest in new opportunities. Through increased scale and U.S. headquarters, the combined company anticipates being included in new indices and enjoying improved access to capital;
Catapults New Hut's diversification strategy forward. New Hut is expected to generate monthly recurring fiat hosting revenues from long-term clients, bitcoin mining sites looking to maximize the potential of their facilities through managed infrastructure operations, from equipment sales to customers, and from the Microbt-certified repair centre business serving customers across North America and Northern Europe;
Maintains commitment to advancing the high performance computing traditional data centre business. New Hut remains committed to supporting and growing the HPC business, which continues to be a cornerstone of the combined company's diversified strategy, generating monthly recurring revenue from approximately 370 North American customers;
Creates a strengthened, proven and trusted senior leadership team and board of directors with a record of value creation. The combined executive team will lead New Hut's approximately 210 team members to deliver on the existing and proven strategy of growing long-term sustainable operations;
Grows pipeline of opportunities. The transaction combines a pipeline of growth opportunities at existing, greenfield and brownfield sites;
Enhances position in one of the world's high-potential bitcoin mining regions. The merger solidifies New Hut as a Bitcoin mining entity with operating capacity at high-quality sites in Alberta, Canada, and Texas, Nebraska and New York in the United States;
Advances commitment to driving improvements across all ESG metrics. While the team is committed to shared ESG goals, the transaction improves New Hut's overall energy mix to include wind, hydro and nuclear sources;
Improves energy expertise and hedging capabilities. The USBTC team brings significant leadership in energy origination, development, demand response, hedging, grid stabilization and analytics to New Hut, significantly enhancing the combined company's ability to better plan around stable and predictable energy usage and mitigate fluctuating prices across markets.
Transaction summary and timing
Under the terms of the business combination agreement, the transaction will be effected by way of a court-approved plan of arrangement involving Hut 8 under the Business Corporations Act (British Columbia) and a statutory merger involving USBTC under the laws of the State of Nevada. The arrangement will require the approval of at least 66-2/3 per cent of the votes cast by the shareholders of Hut 8 voting at a special meeting of Hut 8's shareholders. The merger is also subject to the approval of USBTC stockholders.
Completion of the transaction is subject to regulatory and court approvals, and other customary closing conditions. Regulatory approvals expected to be required include receipt of approval under the Competition Act (Canada) and the United States Hart-Scott-Rodino Antitrust Improvements Act. In addition, the arrangement will require the approval of the Supreme Court of British Columbia; New Hut's common stock will require approval for listing on the Toronto Stock Exchange and The Nasdaq Capital Market. The Business Combination Agreement includes non-solicitation provisions for both Hut 8 and USBTC, with Hut 8 maintaining a fiduciary out to accept a superior proposal, subject to USBTC's right to match and other customary exceptions. Hut 8 is required to pay USBTC a termination fee of $10-million (U.S.) in certain circumstances.
Officers and directors of Hut 8 have entered into support and voting agreements with USBTC, agreeing to vote their Hut 8 shares in favour of the arrangement. Officers, directors and certain stockholders of USBTC have entered into a stockholder support agreement with Hut 8, agreeing to vote their USBTC stock in favour of the merger.
It is anticipated that the meeting and the receipt of the written consent of USBTC stockholders will occur in the second quarter of 2023. Closing is expected to occur thereafter, subject to satisfaction of the closing conditions under the business combination agreement.
Pursuant to the business combination agreement, Hut 8 has also agreed to provide USBTC with secured bridge financing during the interim period, with the expected amount of such financing ranging from $6-million (U.S.) to $6.5-million (U.S.), subject to the completion of definitive loan documentation.
Following completion of the transaction, the shares of New Hut will trade on the Toronto Stock Exchange and the Nasdaq Stock Market, subject to approval or acceptance of each exchange in respect of the transaction.
Board of directors' approval
Each of Hut 8's and USBTC's respective board of directors have unanimously approved the business combination agreement and the transaction. Stifel GMP provided a fairness opinion to the board of directors of Hut 8 stating that, as of the date of such opinion, and based upon the scope of review and subject to the assumptions, limitations and qualifications stated in such opinion, the USBTC exchange ratio provided for in the business combination agreement is fair, from a financial point of view, to Hut 8. The board of directors of Hut 8 also received a second, independent fairness opinion from the Duff & Phelps Opinions Practice of Kroll LLC stating that, as of the date of such opinion and based upon the scope of review and subject to the assumptions, limitations and qualifications stated in such opinion, the USBTC exchange ratio provided for in the business combination agreement is fair, from a financial point of view, to Hut 8.
Following the closing of the transaction, the combined company will be domiciled in the United States and will be led by a proven leadership team that builds on the strengths and capabilities of both companies. The senior executive team and board of directors of Hut 8 will be enhanced by the addition of new members of USBTC who have significant knowledge and experience to support the combined operations. The board of directors of New Hut will consist of 10 directors, comprising five directors from Hut 8 and five directors from USBTC.
The key senior management team and directors will include:
Chair of the board -- Bill Tai;
Chief executive officer -- Jaime Leverton;
President -- Asher Genoot;
- Chief strategy officer -- Michael Ho;
- Chief financial officer -- Shenif Visram.
Advisers and counsel
Hut 8 has engaged Stifel GMP as its exclusive financial adviser and Bennett Jones LLP and Skadden, Arps, Slate, Meagher & Flom LLP as its legal advisers in connection with the transaction. USBTC has engaged Needham & Company as its exclusive financial adviser and Stikeman Elliott LLP, Greenberg Traurig, P.A. and Brown Rudnick LLP as its legal advisers on the transaction.
For further information on the terms and conditions of the transaction, please refer to the business combination agreement in its entirety and the management proxy circular to be mailed to Hut 8 shareholders for the meeting in due course, which will be available on SEDAR and EDGAR. Additional details about the transaction can be found in a joint investor presentation. Shareholders are encouraged to read the management proxy circular and other relevant materials when they become available.
The conference call will begin at 8:30 a.m. ET on Feb. 7, 2023.
- To join the conference call without operator assistance, you may register and enter your phone number to receive an instant, automated call back that will place you in the conference.
- Those joining via operator should dial in five to 10 minutes early to: 888-664-6392 (toll-free, North America) and use access code: 28360816, followed by the number symbol.
About Hut 8
Hut 8 is a large innovation-focused digital asset miner, led by a team of business-building technologists, bullish on bitcoin, blockchain, Web 3.0 and bridging the nascent and traditional high performance computing worlds. With two digital asset mining sites located in Southern Alberta and a third site in North Bay, Ont., all located in Canada, Hut 8 has high capacity rate and large inventory of unencumbered, self-mined bitcoin. With 36,000 square feet of geo-diverse data centre space and cloud capacity connected to electrical grids powered by significant renewables and emission-free resources, Hut 8 is revolutionizing conventional assets to create the first hybrid data centre model that serves both the traditional high performance compute (Web 2.0) and nascent digital asset computing sectors, blockchain gaming and Web 3.0. Hut 8 was the first Canadian digital asset miner to list on the Nasdaq Global Select Market. Through innovation, imagination and passion, Hut 8 is helping to define the digital asset revolution to create value and positive impacts for its shareholders and generations to come.
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